Stay Up To Date On Pennsylvania Court Matters

The Superior Court recently weighed in with an interesting decision involving due diligence in the context of service by publication when potentially interested parties to a litigation cannot be located. See Sisson v. Stanley, No. 1347 MDA 2013 (Pa. Super. Ct., Jan. 27, 2015).

In 1953, Joseph Stanley transferred all right, title, and interest in real property located in Susquehanna County, Pennsylvania to Pauline Battista, subject to a reservation of mineral and gas rights. The present owners of the property, Donald R. Sisson and Mary Sisson, acquired the property in 1986 from Battista subject to the same reservation.

In 2010, a producer of natural gas, Chesapeake Appalachia, LLC, approached the Sissons with a proposed lease to extract shale gas. Chesapeake informed the Sissons of the cloud on title, prompting the Sissons to file a quiet title action in the Susquehanna County Court of Common Pleas in April 2010. In their quiet title action, the Sissons sought, in part, to extinguish the reservation rights retained by Stanley and/or his heirs.

The Sissons obtained permission to perform service by publication, claiming that they were unable to locate any heirs of Mr. Stanley. The Sissons submitted an affidavit informing the trial court of the steps taken to locate an heir, which included:

Checking the public records in the Recorder of Deeds;

Searching local telephone directories for individuals with similar names; and

Checking various internet sites for the names and possible locations of Stanley and/or his heirs, executors, and assigns.

In August 2010, the trial court entered a final order quieting title. Two months later, the last remaining sibling of Mr. Stanley filed a petition to open the judgment claiming improper service. The trial court granted the petition and opened the judgment. In June 2013, after more than two years of litigation, the trial court entered judgment in favor of the surviving sibling in response to a motion for judgment on the pleadings. The Sissons appealed to the Superior Court.

In affirming the trial court, the Superior Court held that the Sissons failed to exercise reasonable diligence in locating a living heir of Mr. Stanley. Among other things, the Sissons failed to:

Search public records in the Register of Wills office, which would have revealed Mr. Stanley’s will and beneficiaries;

Perform a search of local death records or newspaper archives for Mr. Stanley’s obituary, which identified his surviving relatives; and

Set forth in detail efforts taken on internet to identify Mr. Stanley’s heirs.

With respect to the last point, the Superior Court stated: “[g]iven the ease of identifying and using sophisticated Internet services to trace ancestry and family history, it is inconceivable that counsel, employing good faith efforts, was unable to locate a single . . . heir.”

The Superior Court also considered the Sissons’ argument that the original 1953 deed could not possibly have intended to reserve rights to Marcellus Shale gas when (a) the existence of Marcellus Shale gas was not known at the time, and/or (b) commercial exploration was not possible in 1953. The Superior Court rejected this argument holding that a clear reservation of rights referencing “gas” is enough.

On Friday, the Superior Court issued a decision that should serve both as a cautionary tale to attorneys as well as a reminder that foreign corporations must register to do business in Pennsylvania to bring an action in its courts. SeeDrake Manufacturing Company, Inc. v. Polyflow, Inc., No. 959 WDA 2014 (Pa. Super. Ct., Jan. 23, 2015).

Drake Manufacturing is a Delaware Corporation with operations in Pennsylvania. Polyflow is a manufacturer of tubing products located in Oaks, Pennsylvania. Over a period of 8 months in 2008 and 2009, Polyflow entered into multiple contracts with Drake for the purchase of couplings used in Polyflow’s manufacturing process. In 2009, Drake sued Polyflow in the Warren County Court of Common Pleas alleging a failure to pay for good in accordance with the parties’ contracts.

Polyflow raised the issue of standing in its answer to Drake’s complaint, asserting that Drake failed to obtain a certificate of authority to do business in Pennsylvania. Section 4121 of the Business Corporation Law provides that “a foreign business corporation, before doing business in this Commonwealth, shall procure a certificate of authority to do so from the Department of State…” 15 Pa.C.S. § 4121(a). The penalty for failing to do so is set forth in Section 4141 (titled “Penalty For Doing Business Without Certificate Of Authority”), which states that “a nonqualified foreign business corporation doing business in this Commonwealth within the meaning of Subchapter B shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority.” 15 Pa.C.S. §4141(a).

Despite having received notice of the lack of standing issue, Drake failed to obtain a certificate of authority from the Department of State prior to or during trial. Polyflow moved for compulsory nonsuit at the close of Drake’s case-in-chief. The trial court denied Polyflow’s motion and entered a verdict in favor of Drake in the amount of $291,766.61. Polyflow filed timely post-trial motions seeing judgment n.o.v. raising, among other things, the standing issue. In response, Drake submitted a certificate of authority more than two months after the verdict. The trial court denied the post-trial motions and Polyflow appealed.

The Superior Court reversed, holding that Drake lacked standing to file a suit in the first instance, and that Drake continued to exhibit a lack of reasonable diligence by failing to obtain a certificate of authority during the pendency of litigation.

Further, although a foreign corporation may comply with Section 4121 by obtaining a certificate of authority “during the course of a lawsuit,” see, e.g., International Inventors Inc., East v. Berger, 363 A.2d 1262, 1264 (Pa. Super. Ct. 1976), Drake could not do so during the post-trial motion stage. The Superior Court held that Drake’s late presentation of a certificate of authority was barred by the Pennsylvania Supreme Court’s decision in Claudio v. Dean Machine Co., 831 A.2d 140 (Pa. 2003), which prohibits a party from submitting evidence in post-trial proceedings that the party failed to submit during trial due to a lack of reasonable diligence.

The Superior Court reduced its 27-page decision to one sentence:

Although we can understand the trial court’s reluctance to rule in Polyflow’s favor under these circumstances, the fact remains that (1) Polyflow timely raised the defense of Drake’s lack of capacity to sue, (2) Drake failed to cure its lack of a certificate of authority during the next 3½ years, (3) Drake failed to refute this defense at trial, and (4) this defense was fatal to Drake’s case.

Polyflow’s counsel raised the issue of lack of capacity and apparently kept it in his back pocket until conclusion of Drake’s case in chief. This decision should serve as a reminder to always review and re-review defenses raised in new matter prior to trial, and to be mindful of Section 4121, which is often overlooked by foreign corporations seeking to litigate disputes in Pennsylvania’s courts.

Last week, the Pennsylvania Superior Court issued an interesting decision involving the enforceability of an unsigned agreement to arbitrate.

In Bair v. Manor Care of Elizabethtown PA, LLC, plaintiff, Sylvia Bair, brought a wrongful death lawsuit against Manor Care in the Lancaster County Court of Common Pleas alleging institutional abuse and/or neglect resulting in the death of her elderly mother, Martha Edwards. Manor Care filed preliminary objections to the complaint seeking to compel arbitration pursuant to a standalone “Voluntary Arbitration Agreement” signed by Ms. Bair on behalf of her mother at the time of admission pursuant to a power of attorney.

The agreement contained blanks on the first page for the insertion of the names of the contracting parties and the date – none of these blanks was completed. Further, the agreement provided that, “arbitration is described in the voluntary arbitration program brochure,” a copy of which was to be “attached and made part of th[e] agreement.” The brochure, however, was not attached.

The agreement also provided, in bold capital letters, that: “THE PARTIES CONFIRM THAT EACH OF THEM UNDERSTANDS THAT EACH HAS WAIVED THE RIGHT TO TRIAL BEFORE A JUDGE OR JURY AND THAT EACH CONSENTS TO ALL OF THE TERMS OF THIS VOLUNTARY AGREEMENT.” Following this paragraph, there were signature lines for Ms. Edwards, Ms. Bair in both her representative capacity and in her individual capacity, and for a Manor Care representative. Ms. Bair signed the agreement as Ms. Edwards’s legal representative, but only in her representative capacity. The signature line for a Manor Care representative was left blank.

The trial court determined that the arbitration agreement was unenforceable because, among other things, a representative of Manor Care failed to sign the agreement. Manor Care filed an immediate appeal as of right to the Superior Court arguing that a signature is not required to enforce an agreement, and “certainly not [by] the party attempting to enforce it.”

In affirming the trial court, the Superior Court recited long-standing precedent that, for an arbitration agreement to be enforceable, parties must demonstrate “in a clear and unmistakable manner [an agreement] to arbitrate their disputes.” After reviewing the facts, the Superior Court determined that the arbitration agreement lacked essential terms such as “the names of the contracting parties, the date of the agreement, and the brochure describing the arbitration process, which was expressly made part of the agreement.” Further, the Superior Court determined that the agreement “expressly required the signatures of both parties.” Notwithstanding the fact that it was Manor Care and not Ms. Bair that sought to enforce the agreement, the Court held that Manor Care’s failure to sign the agreement demonstrated an absence of a mutual agreement to arbitrate by Manor Care.

The lesson of this decision is that individuals and businesses seeking to enforce arbitration agreements should be careful to fill in the blanks and sign on the dotted line.

Recently, the Pennsylvania Supreme Court granted a Petition for allowance of appeal in a non-compete case.It is a standard case, whereby the non-compete was not signed contemporaneously with the start of employment. Thus, since there was no new consideration or benefits conferred upon the employee, both the lower court and the Superior Court found that the non-compete was unenforceable for lack of valuable consideration.

Sounds like a simple case, so why did the Pa Supreme Court grant the Petition for Allowance of Appeal.As background, the employer raised an interesting argument to avoid the lack of valuable consideration. The employer argued that the Uniform written Obligations Act does not require new consideration if the magical language “Intend to be legally bound” was in the agreement. In this case that language was in the agreement.

The Pa Superior Court affirmed the Lower Court and found that the magical language did not cure the lack of valuable consideration. In doing so the Pa Superior Court did analyses of the Uniform Written Obligations Act along with prior case law in which the Pa Supreme Court found that a contract under seal did not negate the requirement to have valuable consideration to enforce a non-compete.

The Pa Supreme Court granted the Petition for Allowance of Appeal on the following issues:

Did the Superior Court misconstrue the Uniform Written Obligations Act?

Did the Superior Court erroneously rely upon contract under seal cases?

Did the Superior Court impermissibly amend the Uniform Written Obligations Act under the guise of interpreting it?

Based upon the foregoing, it would appear that the Pa Supreme Court is not going to change the law in Pennsylvania requiring new valuable consideration for non-competes to be enforceable. It appears that the Pa Supreme Court will be ruling on the Pa Superior’s Court’s interpretation of the Uniform Written Obligations Act and/or the case law on Contracts under seal. However, stay tuned since you never know.

On November 19, 2014 the Pennsylvania Supreme Court issued a decision in Zauflik v. Pennsbury School District in which the high court found that Pennsylvania’s $500,000 local agency limit of liability was constitutional.

As background, Ashley Zauflik sustained severe life changing injuries when she was struck by a school bus owned by Pennsbury School District and driven by one of their employees.Pennsbury School District like all other school districts are considered local agencies and are granted immunity from liability under the Political Subdivision Tort Claims Act.There are limited exceptions to the act which permit a lawsuit against a local agency. The applicable exception in this case was “negligent operation of a motor vehicle”.

The Political Subdivision Tort Claims Act also provides a maximum limit of liability for a local agency of $500,000. Prior to trial Pennsbury admitted to liability and agreed to tender the statutory limit of liability of $500,000. The Plaintiff refused the offer and the case proceeded to a jury trial whereby the jury issued a verdict in favor of the Plaintiff for over 14 million dollars. Pennsbury filed a post-trial motion to mold the verdict in accordance with the statutory limit of liability and the trial judge granted the Motion molding the verdict to $502,661.63 which included delay damages.The Plaintiff appealed and the Commonwealth Court affirmed.

The Pa Supreme Court granted allocator to review whether the statutory cap was constitutional, whether it violated the Equal Protection Clause and whether it violated the Separation of Powers.The Pa Supreme Court in lengthy analyses which included a detailed history of governmental immunity in Pennsylvania found that the cap limit was constitutional, did not violate equal protection or the separation of powers. While the Court had empathy with the Plaintiff who suffered life changing injuries, the Court opined that it was up to the legislature to change the law not the Court. Accordingly, the Commonwealth Court decision was affirmed which resulted in the 14 million dollar judgment being reduced to $502,661.63.

I recommend that you keep the decision handy in case you have a case involving the Political Subdivision Tort Claims Act. The case provides a detailed history of the law and the common law that preceded the statute.

On October 28, 2014, the Pa Supreme Court issued one of many orders in which they denied a Petition For Allowance of Appeal. In this case, Cordes, v. Associates of Internal Medicine, the Supreme Court refused to take a case that was viewed by the Pa Superior Court as a case of first impression in Pennsylvania. Whether a Judge can rely upon a prospective jurors statement that they can be fair when there is a pre-existing relationship between a juror and one of the parties in the case.

I previously blogged on the Superior Court decision. In summary the Pa Superior Court vacated a defense jury verdict since the trial judge should have struck one or more jurors for cause. The result of the Pa Supreme Court’s refusal to hear the case is that the case is remanded for a new trial. As I indicated in my previous post, this was an odd case. Usually, trial judges are very cautious and will strike jurors for cause if there is a pre-existing relationship. In this case the court did not. As result, much time and money was wasted.

Today the Pennsylvania Commonwealth Court issued two decisions involving Sovereign Immunity defenses asserted by governmental entities. In the two decisions the Court affirmed a grant of summary judgment and reversed the grant of summary judgment based upon the defense of Sovereign Immunity.

In Falor v. Southwest Pennsylvania Water Authority, Falor sued claiming that the Water Authority was negligent in failing to turn off the water to her vacant property. Falor had requested that the water be turned off. The water company went to the property but since it appeared as if the water was for 2 properties the worker decided not to turn the water off. However, neither the water company nor the water notified Falor that they had not turned off the water. Falor believing that the water had been turned off also turned off the gas. The pipes froze and burst then causing significant damage to her property. The Commonwealth Court affirmed the lower Court’s ruling that under the Pennsylvania Political Tort Claims Act that the water company was immune from liability, despite their negligence, and that there was no applicable exception that applied to the facts of that case.

In Taylor v. Northeast Bradford School District, Taylor was injured when she tripped over a room divider in a gym. The lower court as in Falor granted summary judgment based upon the defense of sovereign immunity. The Commonwealth Court reversed finding that there needed to be evidence in the record to support a finding that the divider was personal property as compared to real estate. While the lower court made such a finding it was not supported by the record. Accordingly, the decision was reversed and remanded for the lower court to consider evidence on whether the divider was a fixture and thus real estate or whether it was personal property.

On September 18, 2014, the Pa Supreme Court issued an Order adopting amendments to Pa Rule of Evidence 611. Rule 611 applies to the presentation of witnesses.

The Amendment revises subpart C which addresses when leading questions are permissible. Leading questions are generally permissible on cross examination and on direct examination of a hostile witness or an adverse party.

The amendment, which takes effect immediately, adds the following language to subpart C(2), or examination of a hostile witness or adverse party:

“A witness so examined should usually be interrogated by all other parties as to whom the witness is not hostile or adverse as if

under redirect examination”

The amendment basically codifies the practice in some Courts. It also eliminates any confusion since some may argue that they are also entitled to leading questions.

On August 18, 2014, the Pennsylvania Supreme Court reiterated the standards in Pennsylvania for transfer of venue. In doing so, the Court reversed the decision of the Pa Superior Court and affirmed the decision of the Philadelphia Court of Common Pleas Judge to transfer venue to Dauphin County.

As Background, Residential Warranty Corporation and Integrity Underwriters filed suit in Dauphin County against Alexander Bratic and Joseph Proko ( “Bratic and Proko”). The case ended when Bratic and Proko winning on a Motion for Summary Judgment. Thereafter, Bratic and Proko filed a lawsuit in Philadelphia against Residential Warranty Corporation and Integrity Underwriters and their attorneys ( the “Defendants”) for wrongful use of civil proceedings and common-law abuse-of-process.

The Defendants filed a motion to transfer venue to Dauphin County pursuant to Pa.R.C.P. 1006 (d)1) for forum non conveniens. The Philadelphia Court of Common Pleas granted the Motion for the following reasons:

The original claim which resulted in this lawsuit took place in Dauphin County;

All the Defendants are from Dauphin County;

Each of the Defendants’ 8 witnesses live over 100 miles from Philadelphia and are engaged in business activities which make their ability to appear at trial in Philadelphia County far more burdensome then in Dauphin County

The sole connection to Philadelphia is that Defendants occasionally conducted business in Philadelphia.

On appeal the Pa Superior Court initially affirmed the Lower Court. After re-argument before the Court en banc, the Pa Superior Court reversed the lower Court finding that the Defendants did not carry their burden of demonstrating that trial in Philadelphia would be oppressive or vexatious.

On appeal the Pa Supreme Court reversed the Pa Superior Court and found that the Pa Superior Court improperly substituted its judgment for that of the Court of Common Pleas. The Court found that the trial court is vested with considerable discretion when ruling on a Motion to transfer venue and “if there exists any proper basis for the trial court’s decision to transfer venue, the decision must stand.”

The Pa Supreme Court found that there was ample evidence in the record to support the trial court’s decision to transfer venue. While the Defendant has the burden of proof they need not show “near-draconian consequences” as suggested by the Superior court. They just need to show that trial would be more than inconvenient in Philadelphia. Based upon the record the trial court did not abuse its discretion.